Commentators much closer to as well as more knowledgeable of these matters have already weighed in on this over-reaction. I’d still like to offer some additional reflections, not merely to add what I hope will be some context to Friday’s decision, but also to shed some light on the Court’s strategy in the “game” in which it inescapably finds itself. Finally, I’d like to suggest that the Court’s ruling has major implications for the process of EU reform that David Cameron has been struggling to energize. As I’ll explain in the conclusion to this post (apologies in advance for its length), it is hard to envision any outcome of Friday’s decision that will not compel the Angela Merkel’s government to undertake reform, including treaty changes. This presents an opportunity for the British government but only if it’s prepared to accept that European reform must include not merely “less” Europe, but also “more,” including possibly an expanded mandate for the ECB to explicitly embrace OMT.

* * *

The use of the word “game” in connection with the GFCC’s decision on Friday was not meant to trivialize the Court’s actions or its European jurisprudence more generally. Rather, I am using the term in the sense of “game theory” – the study of strategic decision-making – an approach that can often yield important insights across a range of social, economic, political and legal contexts. As I’ve written on this blog before, I admire the work of Arthur Dyevre, who applies the insights of game theory to judicial behavior and in particular to the European jurisprudence of the GFCC. In a 2012 paper Dyevre reflected upon the “non-compliance threats” of the GFCC since the Maastricht Decision of 1993, concluding that, from a game-theoretic perspective, the Court “need not ‘bite’ in order for its ‘barking’ to be consequential.” In Dyevre’s view, there has been little need for GFCC to strike down European measures directly in order to effect changes in the behavior of other institutions, whether at the national or supranational levels. Indeed, had the Court taken a more directly confrontational approach, Dyevre suggests the Court may well have diminished its overall effectiveness.

In other words, the Court’s “bark” has been more powerful than any “bite” could possibly have been. The day may well come when the GFCC will run out of threat options and will need to take more direct action. But the Court is apparently not there yet. As explained in further detail below, Friday’s decision may well have been the GFCC’s loudest and clearest “bark” to date. But depending on how other players in this “game” respond, the Court may still not need to test its “bite” more directly.

* * *

Let’s begin with some basics, to counter the simplistic notion that the GFCC has been, or somehow should be, inveterately protective of some idealized vision of its own prerogatives in the process of European integration. The Court’s approach has in fact always been highly accommodating of the functional demands of integration as well as the political choice to pursue it, not least in the context of monetary union (see, e.g., Maastricht Decision of 1993 paras. 95-96 on ECB independence, and European Monetary Union Decision of 1998 paras. 99-105 on deference to the political decision in favor of EMU). In both these foundational decisions, the Court bent over backwards to approve deepened integration, notably the EMU, even as it laid down legal parameters that integration could not cross consistent with the Court’s interpretation of the Basic Law.

More recently, the Court’s jurisprudence on Europe – starting with the Lisbon Decision of 2009 and carrying through its various decisions on the Eurozone crisis over the course of 2011-2012 (here, here, here, and here) – has articulated not merely substantive bounds but also procedural requirements for the vindication of “constitutional identity” and the so-called Demokratieprinzip on the national level. For the most part, however, the Court’s concrete holdings (generally relating to heightened Bundestag involvement) have been directed only against German domestic institutions, which have dutifully complied with the judicially-defined parameters in their participation in the process of European integration going forward. These instructions have had, in particular, concrete consequences for the subsequent course of the negotiations in connection with the Eurozone crisis, as the ESM Decision of September 2012 and the negotiations over the Single Resolution Fund (SRF) well demonstrate.

The Court has of course, in dicta, expressed concerns about aspects of the CJEU’s jurisprudence, some of which have been more directly actionable than others. Perhaps the most actionable was expressed in the Maastricht Decision itself: the concern that the old-Article 235 (now Article 352 TFEU) might be misinterpreted to provide “effects that are equivalent to an extension of the Treaty. Such an interpretation … would not produce any binding effects for Germany” (see para. 99 of the Maastricht Decision). This particular “bark” led to a quick and favorable response by the CJEU in Opinion 2/94, which held (in para. 30) that Article 235 “cannot serve as a basis for widening the scope of Community powers,” and more particularly that it “cannot be used as a basis for the adoption of provisions whose effect would, in substance, be to amend the Treaty without following the procedure which it provides for that purpose.”

The GFCC’s more fundamental challenge to the authority of the CJEU, of course, has been in the reservation of ultimate Kompetenz-Kompetenz, an assertion in obvious tension with the doctrines of supremacy and the CJEU’s purported exclusive competence to rule on the legality of EU measures. Here, however, the German court has proceeded cautiously, careful not to overplay its hand, even as its position on ultimate Kompetenz-Kompetenz is arguably shared by other national high courts.

Second, the GFCC (post-Solange II) has been broadly deferential to the CJEU’s handling of many crucial questions, notably relating to individual rights. This stands in contrast to the Court’s more aggressive position in the defense of “constitutional identity” and national democracy under the so-called “eternity clause” of Article 79(3) of the Basic Law. In the Court’s view, the obligation to defend constitutional identity and national democracy may require the recognition of substantive constraints on delegation to the supranational level. I spell out one possible explanation for this differential approach to rights- vs. democracy-protection in Power and Legitimacy (pp.177-78):

The incentives for private litigants to vindicate their fundamental rights are always strong regardless of the forum, national or supranational. Moreover, the judicial culture of the last half-century has been generally very receptive to rights-based claims; thus a national high court could safely expect a supranational adjudicator to treat a rights-based challenge to supranational action in manner reasonably respectful of rights protection. By contrast, the incentives have been much weaker for litigants and (at least) supranational judges to protect [national democracy] through the enforcement of delegation constraints. In the parliamentary systems of Europe, the legislative majority (even a coalition) will usually be hesitant to oppose the government’s support for a European measure except in rare circumstances. Consequently, the incentive of other institutional players to mount a challenge is significantly weaker in the democracy-protection context, thus necessitating a more aggressive judicial role.

(This insight helps to counter objections raised in the dissents of Justices Lübbe-Wolff and Gerhardt in Friday’s decision. Both justices express concern about the separation-of-powers implications of the broad standing to seek judicial review vis-à-vis European integration that the Court has recognized under Article 38 of the Basic Law. While the discomfort of the dissenting justices is understandable, the incentive structure outlined above points to why, in the unique circumstances of European integration, the Court’s Article 38 standing doctrine may well be justified.)

Third, and finally, even as to the exercise of “ultra vires” review in defense of “constitutional identity” and national democracy, the Court has sought a balance with Germany’s overarching constitutional commitment (expressed in Article 23 of the Basic Law) to an “openness to European law,” or Europarechtsfreundlichkeit. Thus, for example, the Lisbon Decision (para. 240) speaks only of controlling “obvious transgressions,” for which “legal protection cannot be obtained at the Union level,” thus implying an obligation first to exhaust supranational remedies, notably a preliminary reference. The Court more recently refined and clarified these obligations in its Honeywell decision of 2010, holding that, in order to be actionable before the GFCC, the purported ultra vires actions must not only be “manifest” but also “structurally significant” (para. 71) – again a continuation of the strongly deferential approach that the Court has taken over many decades (for more details, see Power and Legitimacy, ch. 4). Moreover, Honeywell makes clear that, before the Constitutional Court will take up a claim that a European act is purported ultra vires in such a structurally significant way, the CJEU must first “be afforded the opportunity to interpret the Treaties, as well as to rule on the validity and interpretation of the legal acts in question, in the context of preliminary ruling proceedings” (para. 60). This is a concrete realization of the idea that the CJEU retains a role as a “lawful” (if not necessarily exclusive) judge of European acts under German constitutional law.

Viewed in the context of the Court’s prior case-law, the decision this past Friday to refer the question of the legality of the ECB’s OMT program is thus not a radical break in the GFCC’s approach to European integration, and certainly not a “surrender” or “abdication.” The importance of the decision is to be found elsewhere, not in the decision to make a preliminary reference itself, but in the substance of the Court’s proffered interpretation of the OMT program. Very much in keeping with its established strategy of “barking” over “biting,” the GFCC majority on Friday outlined four essential substantive points that it strongly urges the CJEU to take into consideration as it undertakes its own review of the OMT program:

(i) the OMT program, in the GFCC’s view, “does not appear to be covered by the mandate of the European Central Bank,” i.e., is a measure of not of “monetary” but “economic” policy designed to reduce interest-rate spreads and provide quasi-fiscal redistribution among the member states “albeit without their parliamentary legitimation and monitoring” (para. 4a);

(ii) the OMT program “aims at a prohibited circumvention” of the ban on monetary financing contained in Article 123 TFEU (para. 4b) and that the ECB’s asserted defense of the program is inadequate because it “would largely suspend the prohibition of monetary financing” of national budgets (para. 4c);

(iii) these violations of the ECB’s mandate and the ban on monetary financing, if upheld by the CJEU, would, in the GFCC’s estimation, constitute a “manifest” and “structurally significant” violation of the scope of authority delegated to the ECB, thus giving rise to an ultra vires claim cognizable before the GFCC (paras. 2 and 3); and finally

(iv) whether these violations would thus “also violate the constitutional identity of the Basic Law is currently not clearly foreseeable and depends, among other factors, on the content and scope of the OMT Decision as interpreted in conformity with primary law” by the CJEU (para. 5). The GFCC offers a more limited interpretation of the OMT program (again, “barking” but not “biting”) that the Court would deem acceptable and would avoid the need for it undertake the “constitutional identity” claim. This, in the Court’s view, “would probably require that the acceptance of a debt cut must be excluded, that government bonds of selected Member States are not purchased up to unlimited amounts, and that interferences with price formation on the market are to be avoided where possible” (para. 4d).

* * *

As noted above, this is a loud and clear “bark.” But it is still a bark and not a bite; that is, it is an effort to gain influence through non-compliance threats rather than outright non-compliance, very much in the vein of the Court’s well-established strategy. The CJEU may respond by calling what it deems to be a bluff. Certainly the pressure to do so may be intense, from the ECB, the Commission, other member states, the markets, all of which view the ECB’s mere announcement of OMT as essential to the salvation of the common currency.

But in many respects the CJEU’s reaction is beside the point. The GFCC’s decision on Friday makes clear that the more important target is, as always, the German political class, in the form of the federal government and the German parliament (Bundestag and Bundesrat). As the Court specifies (in para. 3a), these bodies:

can retroactively legitimise the assumption of powers by initiating a corresponding change of primary law [i.e., the EU treaties], and by formally transferring the exercised sovereign powers in proceedings pursuant to Art. 23 sec. 1 sentences 2 and 3 GG [requiring transfers only “by a law” adopted by the Bundestag “with the consent of the Bundesrat” and “subject to paragraphs (2) and (3) of Article 79”]. However, insofar as this is not feasible or wanted, they are generally obliged within their respective powers, to pursue the reversal of acts that are not covered by the integration programme, with legal or political means, and – as long as the acts continue to have effect – to take adequate precautions to ensure that the domestic effects remain as limited as possible.

In short, even if the CJEU does not agree with the GFCC’s limiting interpretation of the OMT program (in para. 4d), the Court says that the German government and parliament will nevertheless be under a duty to “legitimise the assumption of powers” claimed by the ECB and ratified by the CJEU. Or, if “this is not feasible or wanted,” then they must “pursue [a] reversal … with legal or political means” and “to take adequate precautions to ensure that the domestic effects remain as limited as possible.” Either way, the likely fall-out of Friday’s OMT reference is that the German government will find itself, whether it wanted to be or not, clearly aligned with the project of EU reform and treaty change. The only other course open to the German government would be to attempt to strip the GFCC of jurisdiction over questions relating to European integration as some have suggested in the past. Given the way in which the Court’s European jurisprudence is now so deeply interwoven with the “eternity clause” of Article 79, this alternative seems deeply unlikely, risking a constitutional crisis that the Merkel government could not easily control.

As David Cameron welcomes Angela Merkel to London later this month, he should take cognizance of this fact. But to gain “the support of Mrs Merkel in his attempt to reform Britain’s relationship with the EU,” Cameron must be prepared to help the German Chancellor. It has long been clear that reforms emerging out of the Eurozone crisis will entail both “more Europe” and “less” – more, to consolidate the EMU through supranational surveillance of national budgets, establishment of a banking union, and now perhaps redefinition of the ECB’s mandate to accommodate OMT; but also less, through a possible reinvigoration of subsidiarity, reinforcement of the single market, and promotion of greater democratic legitimacy through expanded powers for national parliaments – all options that Angela Merkel may well favor.

Steve, such an agreement strikes me as unlikely, given the BVerfG’s stated position on OMT. However, you’re right that the German Court might find itself persuaded by the CJEU’s opinion (should the latter find the case admissible at all). But the more likely scenario, it seems to me, is one in which the CJEU disagrees with the BVerfG on the merits of OMT, the ECB’s mandate, and the violation of Art. 123 TFEU, and the BVerfG then replies with a decision directed at German authorities that a treaty amendment would be needed *under German law* to accommodate the CJEU’s ratification of the ECB’s position. And even in the unlikely scenario that the CJEU *agrees* with the BVerfG on OMT, then the German government would find it necessary to join with other member states to override that decision through some kind of treaty amendment so that the ECB could do its job. Either way, it seems to me, a treaty amendment will follow.

Professor, could you talk more about the extent to which the CJEU might bind the BverfG in this case? To me, it appears the BverfG has held that three questions must be answered. The first is one of German law and the exclusive province of the BverfG: Has the ECB purported to exercise powers that elected representatives did not confer on it by treaty (i.e., acted ultra vires). We know that elected representatives, in the TFEU, conferred on the ECB the power to conduct “monetary policy”, and that they forbid the ECB to engage in “monetary financing”. But we don’t know the meaning of these terms under the treaty. Thus, the second two questions: what is the definition of “monetary policy” under the TFEU (particularly where does it stop and “economic policy start”), and what is the definition of “monetary financing” under the treaty? These the BverfG has deemed questions of treaty interpretation and therefore Union, not German, law. I’ve read the OMT decision and I’ve read Honeywell (but that’s all I’ve done so what do I know?!), and to me it sounds like the BverfG recognizes the CJEU as the exclusive judge *on matters of Union law*. Is that wrong? In Honeywell, for example, doesn’t the BverfG say, in discussing the “lawful judge” issue, that a German court must either follow CJEU precedents as best it can, without “deliberately deviating”, or refer material questions of Union law to the CJEU for a preliminary ruling (and, necessarily it seems, not “deliberately deviate” from the CJEU ruling)? Yes, the BverfG has given its own interpretation of Union law, but isn’t that a legal requirement of referring the question to the CJEU? And the BverfG seems to have taken care to emphasized that its own anti-OMT view is “subject to the interpretation by” the CJEU. With this limited and perhaps incorrect understanding, I’m tempted to argue that the BverfG has found the German law question depends on a question of *Union* law, that the BverfG must and expects to defer to the CJEU decision on that question, and that if the CJEU holds that OMT is “monetary policy” but is not “monetary financing”, the BverfG must hold that the ECB has acted within the powers already conferred. In such case, there is no need to change German law to accommodate new powers because no new or expanded powers will have been recognized. I agree this is not an “abdication”, as it seems that this is how Union and national law are supposed to co-exist and Europe to “integrate” legally. Thank you for your post.

To B Gustafsson: I would describe the GFCC’s approach to the CJEU as one of “strong” but not “unlimited” deference (an interpretation I detail in Chapter 4 of *Power and Legitimacy*). The GFCC has said (Honeywell) that it will broadly defer unless the actions of an EU institution (the CJEU included) constitutes a “manifest” and “structurally significant” transgression of the limits of authority delegated to the EU. In this ruling (paras. 2 and 3), the Court has indeed found that the OMT, as interpreted by the ECB, would constitute such a “manifest” and “structurally significant” transgression. So I would not say that the GFCC “must and expects to defer to the CJEU decision on that question.” I hope this helps clarify my take. best, -pll